Market imperfections are central to understanding the mechanisms that permit firms to capture value. Many of these imperfections are competed away when firms struggle to attain and defend competitive advantages, making markets more efficient in the process. The remaining imperfections can become a primary impetus for government intervention. Hence, an understanding of residual market imperfections—those imperfections that persist after market competition and regulation are accounted for—must inform any assessment of the long-term attractiveness of firm strategies. Our framework provides an integrated view of competition and government intervention, two of the principal forces that influence variation in firm profitability.

Strategy, at its core, describes how a company attains superior performance. In industry after industry, there is a wide range in company performance resulting from the various strategies adopted by individual firms. Underneath all of this variation, however, are principles that are straightforward and consistent across industries. This pamphlet outlines these principles to help you set and evolve your company’s strategy. Here we offer a simple and succinct way to think about the sources of competitive advantage. We hope that our way of thinking about why some companies do far better than others is both illuminating and inspiring.